Many individuals understand that they should plan for their death, but don’t know where to start. They have heard that they need a will or a trust, but they don’t know which is the best option for them. That decision should be made after considering both the assets they have, and the beneficiaries to whom they are leaving their assets.
With respect to assets, not all assets can be titled in the name of a trust. Retirement benefits such as an IRA or 401K must be held by an individual based on federal law. Therefore, those assets may not be held in trust. However, the trust can be named as a beneficiary of those assets. If the trust holds those assets, then the trust should have special language regarding retirement assets. However, other assets such as regular bank accounts and brokerage accounts can be held in trust.
For those with a trust, it makes sense to deed the homestead into the trust to avoid having to probate the homestead. Other real property can also be transferred into the trust. However, if the other real property is rented out, it is recommended to have that rental property placed in a separate business entity before it is transferred into the trust for liability reasons.
If individuals have multiple properties and properties in other states, then a trust is often the best way to go about caring for their property during their lifetime and after their death. Without a trust or some other instrument, it is very likely that those properties would need to go through probate.
With respect to considering beneficiaries, there are certain types of beneficiaries where a trust is the best way to manage the distribution of their assets. When dealing with a minor beneficiary, it is especially important to make provisions for the assets of the minor. When assets are distributed to a minor child, if the assets are over Fifteen Thousand Dollars ($15,000.00), then a Guardian of the Property needs to be appointed. If the assets are held in trust, then a guardianship is not necessary.
Another type of beneficiary who would benefit from a trust is an individual with special needs who is collecting government benefits. If the assets are distributed directly to an individual collecting government benefits, then that individual could lose those benefits. It is best to keep the assets in trust to preserve those benefits.
Finally, beneficiaries with substance abuse issues or inability to manage finances benefit when their assets are left in trust. Some beneficiaries, if given a lump sum, would spend those assets in a brief period. If the assets are held in trust, the appointed trustee can ensure that those funds are distributed in such a way as to have the assets benefit the beneficiary as long as possible.
Many individuals don’t realize that even if they have a trust, they still need a will. The most common type of will that individuals with trusts have is a pour over will. The purpose of the will is to pour assets into the trust in the event the settlors (persons who created the trust) forgot to title certain assets in the trust, and those assets did not have direct beneficiaries.
For individuals who do not have the need for a trust, we recommend a will along with an Enhanced Life Estate Deed (“Lady Bird Deed”). The will is deposited with the Clerk of Court upon death. To avoid probate, individuals would need to name beneficiaries on all financial accounts. If that is done, then probate can be avoided on those financial assets. That leaves the homestead should a homestead be owned.
Regarding the homestead, a probate would be necessary on a homestead or other real property to transfer that property to beneficiaries unless the owner engages in estate planning to avoid a probate. For individuals who own a home, if they have a trust, then usually that homestead is transferred into the trust. For individuals who don’t have a trust, they can execute a Lady Bird Deed. The Lady Bird Deed allows the owners to stay in the home for the rest of their lives if they so wish. Upon the death of the owners, the property is immediately owned by the beneficiaries, and they only need to record the death certificate of the owners.
To determine the best estate plan for you and your family, you should consult with an attorney. Please feel free to contact Mara Law, P.A. at 386-672-8081 where we focus on protecting you, your family, and your assets.
